While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Anadarko Petroleum (APC) climbed 5% today after the natural-gas producer posted better than expected quarterly results and received a neutral-to-buy upgrade from Citigroup.
So what: Along with the upgrade, analyst Robert Morris raised his price target to $115 (from $112), representing about 16% worth of upside to yesterday's close. So while contrarian traders might be turned off by Anadarko's sharp rise in recent weeks, Morris' call could reflect a growing sense on Wall Street that the company's prospects still aren't fully baked into the valuation.
Now what: According to Citi, Anadarko's Q1 results were particularly strong. "Anadarko reported recurring Q1'14 EPS/CFPS of $1.26/$5.00 versus our $1.19/$4.23 estimates and Street consensus of $1.15/$4.20 with production of 72.2 MMBOE above the high-end of 69-71 MMBOE guidance and our forecast of 70.1 MMBOE. This more than offset higher-than-anticipated G&A and non-cash Exploration Expense," said Morris. "Based on the Q1 beat and an acceleration of activity in the Wattenberg and Delaware Basin Wolfcamp play, full-year 'same store' production guidance was increased ~1% to 803-816 MBOE/d (we now model 816 MBOE/d, or an 8.7% yr/yr 'organic' uptick) while the capital budget was boosted by ~4%, or $300mm, to $8.4-8.8bn." Of course, with Anadarko shares now up more than 40% from their 52-week low and trading at a forward P/E of 20, I'd hold out for a wider margin of safety before buying into that operating momentum.
